Commercial Real Estate: Now is Choice Time for Purchase or Lease

In today’s real estate market, there are bountiful reasons for a business to consider purchasing a property over leasing, especially for a stable company with a long-term growth plan. Says Kent Hanson, who fronts the Industrial Group at Cassidy Turley, “Leasing definitely gives you flexibility if you’re not sure what your next couple of years are going to look like, but a lease cost versus a purchase cost right now is almost exactly even. If you’ve got the down payment, the financing and a little bit of guts to weather the storm, lock in these record-low interest rates and do it. This is a great time to buy.”

Hanson also suggests investors or muscular business owners projecting long-term growth consider purchasing properties twice the size they presently need. “Use what you need now and lease out the other half to get some income happening to pay down your debt,” Hanson says. “When you need the space, it’s there, and it’s there at today’s price and interest rate. The market today supports that kind of progressive thinking for qualified buyers.”

Although office vacancies of more than 27 percent and industrial vacancies of almost half that are white-knuckle challenges for investors and property owners, that can be a silver lining for business owners otherwise sweating the down economy. “What you’re seeing with landlords is concessions to tenants and business owners: lower rates, rent reductions and sometimes even forbearances,” says Mark Stapp of Arizona State University’s W. P. Carey School of Business. “Those concessions are mostly over, but they do exist. And that’s an argument for leasing in today’s market.”

“Office rental rates are low, and will probably continue to decline in the foreseeable future,” says Justin Himelstein of the Office Group at Cassidy Turley, noting there are a few exceptions in desirable submarkets like Downtown Phoenix. “We’re seeing more leasing for offices now than sales.”

One of the leasing trends noted by Himelstein is clients moving up from C-level properties to A-level real estate, often without spending an extra penny. “If you’re leasing today, you’re going to get a lot more for your money than you would have in, say, 2004.”